Under the Startup India Action Plan, startups that meet the definition as prescribed under G.S.R. notification 127 (E) are eligible to apply for recognition under the program.
Eligibility Criteria for Startup Recognition as per G.S.R. notification 127 (E) is as follows
- The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership;
- Turnover should be less than INR 100 Crores in any of the previous financial years;
- An entity shall be considered as a startup up to 10 years from the date of its incorporation;
- The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth.
Note: An entity formed by splitting up or reconstruction of an existing business shall not be considered a "Startup”.
Income Tax exemption
After getting recognition, a Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.
Eligibility Criteria for applying to Income Tax exemption (80IAC)
- The entity should be a recognized Startup;
- Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC;
- The Startup should have been incorporated after 1st April, 2016.
Tax Exemption under Section 56 of the Income Tax Act (Angel Tax)
Once an entity is recognized as start-up it may apply for Angel Tax Exemption.
Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act
- The entity should be a DPIIT recognized Startup
- Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.
Company Law Relaxations
The government has notified the Companies (Acceptance of Deposits) Amendment Rules, 2020, which amended the Companies (Acceptance of Deposits) Rules, 2014. Through this amendment, the Ministry of Corporate Affairs (MCA) has relaxed deposit norms for startup companies. Now start-up companies are allowed an additional 5 years’ time to repay deposits of Rs. 25 lakhs or more.
Note: This article is purely for academic purpose and shall not be acted upon as a professional advice. The provisions of law referred to in this article may be amended at any time. Thus, I assume no responsibility for the consequences of use of such information without any professional advice. In no event, shall I be liable for any direct, indirect or incidental damage arising in connection with the use of information here in contained.
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